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World Business

Germany, France boost chance of global bank levy deal

(Agencies)
Updated: 2010-04-01 14:59

Berlin, Paris want global bank levy to fund bailouts

BERLIN: Germany and France said on Wednesday bank levies should be imposed internationally to ensure a level playing field and called for national bank restructuring rules to be embedded in a European framework.

France is the latest country to seek a levy on bank balance sheets to fund bank bailouts, after Germany earlier this month announced plans to introduce such a charge.

"We agree fundamentally on the international nature that this mechanism should have," the French Economy Minister Christine Lagarde told a joint news conference with German Finance Minister Wolfgang Schaeuble in Berlin.

The move raises the chances of the G20 group of countries agreeing to a bank levy at their summit in June.

The group seems close to agreement on the principle of hitting banks for a contribution to the costs of securing the financial system, but there are differences over how it should be levied and where the money should go. Some countries are also still wary of the idea, saying they do not need it.

Lagarde said that a bank levy would not necessarily exclude a Tobin-style tax on all financial transactions, which has been rejected by other major economies such as the United States and Canada.

Earlier on Wednesday, the German cabinet had agreed new bank restructuring rules, including the introduction of a levy, which aim to reduce "moral hazard", or banks assuming they will be bailed out with taxpayer money in a crisis.

Tackling bank risk

In a joint statement, France and Germany said the new proposals were a "useful contribution to the international debate on how to mitigate systemic risk", and such national rules needed to be integrated into a European framework.

"The German proposals take into consideration the particularities of our national structures but should also be embedded in a European structure," Schaeuble said.

British finance minister Alistair Darling said on Wednesday that G20 countries should agree a global bank tax that would go direct into national budgets and not stoke "moral hazard".

"A systemic risk levy should not be seen as an insurance policy to benefit individual institutions to use," Darling said in a letter to the G20 made available to the press.

G20 finance ministers will hear proposals next month from the International Monetary Fund for a global bank levy.

The German proposals allow the state to intervene swiftly to restructure or liquidate failing banks while transferring the system-relevant parts -- divisions whose demise could jeopardize the health of the broader financial sector -- to a new body.

The restructuring process should be part financed by a levy on banks, with contributions linked to banks' size and risks posed to the financial system. Schaeuble said the cabinet was aiming to work the proposals into a draft law by the summer.

Lagarde attended the German cabinet meeting as part of a new push to coordinate policy between Berlin and Paris.